U.S. manufacturing output has slowed down, according to data from a survey of purchasing managers amidst restrained demand in the market, mainly owing to severe material shortages that have resulted in longer production lead times and work backlogs.
“With the exception of October and November, the pace of output growth was the slowest since October 2020. At the same time, companies recorded the softest rise in new orders for a year and a further substantial deterioration in vendor performance amid severe material shortages. Longer lead times for inputs also led to another sharp increase in backlogs of work, albeit the slowest for ten months,” said the IHS Markit U.S. Manufacturing PMI report published Monday.
Data collected between Dec. 6 and Dec. 21 suggested that high inflationary rates continued to hike costs for manufacturers and attempts to pass on the expense to customers were hindered by a softening in consumer demand.
“The seasonally adjusted IHS Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 57.7 in December, down from 58.3 in November but broadly in line with the earlier released ‘flash’ estimate of 57.8.”
Although manufacturing output rates went up to the fastest in three months, it was considerably behind the rest of the year. Vendor performance metrics revealed poor performances with significant production postponements because of delays in obtaining raw materials on a timely basis.
Based on the survey, there was a dampening of consumer demand domestically as well as internationally. Port congestion along with a shortage of truckers and shipping containers have contributed to higher transportation rates, vendor issues, and ultimately greater product costs.
“Adding to the sector’s challenges was an ebb in client demand from the highs seen earlier in 2021, with new orders rising at the slowest pace for a year, largely linked to a reluctance at customers to place orders before inventories were worked through. Alongside a slight pick-up in hiring, softer demand conditions contributed to the slowest rise in backlogs of work for ten months,” Siân Jones, Senior Economist at IHS Markit, said in the report.
Work backlogs have piled up as materials arrive late to factories, although the accumulation was slower than in preceding months. Some managers have attributed the lessening of backlogs to lower consumer demand while others have, more positively, suggested this was due to new recruitment drives.
Manufacturers were on a buying spree last month as safety stocks depleted when they were utilized to make up for supply chain disruptions.
The report said that output expectations for 2022 went up to the highest levels since November 2020 as supply chain crunches are anticipated to ease through the year and more suitable personnel will be available for hire.
“While shortages remained significant, the end of the year brought with it some signs that cost pressures have eased. The uptick in input prices was the slowest for six months, and firms recorded softer increases in selling prices amid efforts to entice customer spending,” added Jones.
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